Implications for cross-border operators and European specific entities of a no Brexit deal

Posted in Corporate, M&A and securities Financial institutions

On October 12, 2018 the UK government published a technical notice providing guidance on the implications for legal entities operating across the UK-EU border, or which are European specific entities, if the UK leaves the EU in March 2019 with no agreement in place.

The notice states that, after March 29, 2019 if there is no deal, the UK government will ensure that the UK continues to have a functioning regulatory framework for companies and that, as far as possible, the same laws and rules that are currently in place continue to apply. As a result, companies incorporated outside the EU operating via a branch in the UK, will remain third country businesses and the current overseas company regime will continue to apply to them. EU companies operating branches in the UK will become subject to the same information and filing requirements as other branches of third countries’ companies'.

In addition, an EU company with a branch in the UK that is required by the law of the EEA state of its incorporation to prepare, have audited and disclose accounts, will be required to file in the UK accounting documents including the accounts, any annual directors' report, any auditors' report on the accounts, and any auditors' report on the directors’ report. An EU company with a branch in the UK which does not meet this description will, after exit day, have to comply with the provisions of Part 15 Companies Act 2006 that currently apply (with modifications) to overseas companies.

The notice points out that UK citizens may face restrictions on their ability to own, manage or direct a company registered in the EU, depending on the sector and EU member state in which the company operates. This could mean meeting additional requirements on the nationality or residency of its senior managers and/or directors, as well as limits on the amount of equity that can be held by non-nationals. Similarly, UK businesses owning or running business operations in EU member states are likely to face changes to the law under which they operate, depending on the relevant sector and EU member state. For example, they may have to meet additional requirements to acquire real estate and/or require additional approvals to operate. In particular, UK companies and limited liability partnerships that have their central administration or principal place of business in certain EU member states (such as those that operate the “real seat” principle of incorporation), may no longer have their limited liability recognised,.

Cross-border mergers involving UK companies will no longer be able to take place under the Cross-Border Mergers Directive (although the notice states that they can be structured through private contractual arrangements), and since the UK will no longer be an EU member state, other EU member states will not be required to give effect to cross-border mergers that do not complete prior to the UK exiting the EU.

A number of implications of a no Brexit deal for Societas Europaea (SEs) and European Economic Interest Groupings (EEIGs) are set out in the notice. They will no longer be able to be registered in the UK. UK members of EEIGs registered in other EU member states will be unable to continue to participate in their EEIG unless their formation contract allows them, or is amended to allow them, to do so. However, the notice states that for SEs and EEIGs registered in the UK that have not made alternative arrangements before exit, the UK government will put in place a way of automatically converting them into a new UK corporate structure so that they have a legal status post exit. For SEs, this will include maintaining the employee involvement provisions.

The notice points out that SEs have the option of converting to a UK public limited company provided they have been registered as an SE for at least two years or have had two sets of annual accounts approved, or they may want to consider whether they wish to move their seat of incorporation to another EU member state. UK registered EEIGs could transfer their official address to another EU member state prior to Brexit.

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